I make approximately $45,000 to $50,000 with one full-time and one occasional part-time job. As a single father with no outside financial help, I pay about $7,600 to $8,000 a year in childcare costs so I can work. I can contribute to a childcare pretax account offered through my company, or I can pay for childcare after taxes and the IRS will give me 24% of $6,000 of my childcare costs. Which method would leave more money in my family budget? -- Name withheld

You don't mention how many children you have, but since you refer to $6,000 of your childcare costs, we're assuming you have at least two, since the IRS's break (called the Child and Dependent Care Credit) provides a credit toward $6,000 in childcare only if you have two or more kids. If you have only one child, the maximum expense toward which you can get credit is $3,000. In either case, the credit, based on your income, ranges from 20% to 35% of your childcare expense. Meanwhile, employer-provided dependent care flexible spending accounts (FSAs) max out at $5,000 in pre-tax money.

So let's do the math, starting with the dependent care FSA. At your current salary (with exemptions and standard deductions), you fall into the 15% marginal tax bracket. So if you put $5,000 into your FSA, you'll save 15% in taxes on that money, plus 5.65% in Social Security and Medicare taxes. (That's assuming the payroll tax cut is extended through the end of 2012 — otherwise you'll actually save 7.65%.) So, conservatively, you'll save 20.65% on that money in federal taxes, plus whatever you save on state taxes. You don't mention where you live. "Depending on your state, the FSA could easily yield you another six percentage points in tax savings," says Mark Joseph, a CPA and financial planner in Reston, Va.

In addition, you'll be able to save on an additional $1,000 in expenses using the Dependent Care Credit (which would credit you for up to $6,000 in expenses, minus the $5,000 in this scenario that you're spending from your FSA). Based on the income numbers you sent and some basic assumptions on our part, the Dependent Care Credit would give you credit for 20% of that $1,000.

If you went with the Dependent Care Credit alone (no FSA), you'd see about 20% back on the full $6,000, which would end up meaning less money for you in the end. In the event there are other numbers we're not aware of that affect your adjusted gross income, enabling you to get the 24% you believe you'd get back on the $6,000 — not the 20% we calculate — the final answer would depend on your state and local income tax rates. Are they greater than about 3.5%? In that case, your savings would be bigger using you FSA than they would be with the Dependent Care Credit alone.

If you had one child, the answer would be a no-brainer: Your employer allows you to put aside $5,000 pre-tax, but the Dependent Care Credit only allows you to take the credit against up to $3,000 in expenses. The FSA wins.

Keep in mind, of course, that since we can't actually eyeball your tax returns, we're making some assumptions about your numbers that may not be correct. But in general, as your income grows, and if you live in a high-income-tax state, you're better off with the FSA.

--Kate Ashford

Got a question for the help desk? Send it to